The IRS issued a John Doe subpoena to a Law Firm seeking the identity of clients who retained the Law Firm to acquire, establish or maintain a foreign company, foundation or trust. (The subpoena was based on a previous proceeding in which one of the Law Firm’s clients agreed to pay the IRS millions based on alleged tax evasion through offshore entities.) The District Court refused to quash the subpoena, and the U.S. Fifth Circuit affirmed.
As a general rule, client identities and fee arrangements are not protected as privileged. However, a narrow exception exists when revealing the identity of the client and/or fee arrangement would itself reveal a confidential communication. The exception does not expand the scope of the privilege; it does not apply independent of the privileged communications between an attorney and his client. Rather, a client’s identity is shielded only where revelation of such information would disclose other privileged communications such as the confidential motive for retention. In that regard, the privilege protects the client’s identity and fee arrangements in such circumstances not because they might be incriminating but because they are connected inextricably with a privileged communication – the confidential purpose for which the client sought legal advice.
In this particular case, the John Doe summons at issue seeks, inter alia: documents reflecting any U.S. clients at whose request or on whose behalf the Firm has acquired or formed any foreign entity, opened or maintained any foreign financial account, or assisted in the conduct of any foreign financial transaction; all books, papers, records, or other data concerning the provision of services to U.S. clients relating to setting up offshore financial accounts; and all books, papers, records, or other data concerning the provision of services to U.S. clients relating to the acquisition, establishment or maintenance of offshore entities or structures of entities. “As the Government asserted, this broad request, seeking relevant information about any U.S. client who engaged in any one of a number of the Firm’s services, is not the same as the Government’s knowing whether any Does engaged in allegedly fraudulent conduct, or the content of any specific legal advice the Firm gave particular Does, and then requesting their identities.
“This is particularly true given statements made by Fred Lohmeyer, one of the Firm’s name partners, in his declaration attached to the Firm’s memorandum supporting its petition to quash the summons. He stated the Firm’s other clients have facts that are distinguishable from those of Taxpayer-1 because, to the best of his knowledge, the Firm never advised any other client with respect to the treatment of earned income as income earned by a foreign corporation. This undermines the Firm’s contention that the Government knows the substantive content of legal advice the Firm gave the Does.”
Taylor Lohmeyer Law Firm v. United States, 957 F.3d 505 (5th Cir. 2020).